Commissioner of Taxation v Moodie
[2014] NSWCA 59(2014) 308 ALR 571
(2014) 282 ALR 453
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The impact of this case on ATO policy is discussed in Decision Impact Statement: Commissioner of Taxation v Moodie (Published 7 August 2014).
(Judgment by: Barrett J)
Commissioner of Taxation
v Moodie
Judges:
McColl J
Meagher J
Barrett J
Legislative References:
Corporations Act 2001 - s 588FF; s 588FGA
Supreme court Act 1970 (NSW) - The Act
Tax Administration Act 1953 - Schedule-1 16-B
Civil Procedure Act 2005 - The Act
Case References:
Sims v DCT - [2006] NSWSC 305; (2006) 57 ACSR 249
Dean-Willcocks v Cmr of Taxation (No 2) - [2004] NSWSC 286; (2004) 49 ACSR 325
Cooper (as liquidator of Wanted World Wide (Australia) Ltd (in liq)) v Cmr of Taxation - [2004] FCA 1063; (2004) 139 FCR 205
Young v Cmr of Taxation - [2006] FCA 90; (2006) 56 ACSR 654
Harris v Cmr of Taxation - [2006] QSC 108
Condon v Cmr of Taxation - [2004] NSWSC 481; (2004) 207 ALR 676
Crosbie v Cmr of Taxation - [2003] FCA 922; (2003) 130 FCR 275
Barclays Bank v Tom - [1923] 1 KB 221
Sandtara Pty Ltd v Abigroup Ltd - (1997) 42 NSWLR 5
Insurance Exchange of Australasia Group v Dooley - [2000] NSWCA 159; (2000) 50 NSWLR
Financial Wisdom Ltd v Newman - [2005] VSCA 110; (2005) 12 VR 79
Oshlack v Richmond River Council - [1998] HCA 11; (1998) 193 CLR 72
Commonwealth v Gretton - [2008] NSWCA 117
Kazar (Liquidator) v Kargarian Re Frontier Architects Pty Ltd (in liq) - [2011] FCAFC 136; (2011) 197 FCR 113
Barakat v Bazdarova - [2012] NSWCA 140
Regency Media Pty Ltd v AAV Australia Pty Ltd - [2009] NSWCA 368
Commissioner of Taxation v Sims - [2008] NSWCA 298; (2008) 72 NSWLR 716
Woodgate (as liquidator of Fairlight ESP Pty Ltd) v Cmr of Taxation - [2006] NSWSC 778
Sims v Cmr of Taxation - [2007] NSWSC 1359; (2007) 25 ACLC 1
Edginton v Clark - [1964] 1 QB 367
Duncan v Cmr of Taxation Re Trader Systems International Pty Ltd (in liq) - [2006] FCA 885; (2006) 58 ACSR 555
Olsson v Dyson - [1969] HCA 3; (1969) 120 CLR 365
Peake v Carter - [1916] 1 KB 652
Hall (as liquidators of Reynolds Wines Ltd) v Cmr of Taxation - [2004] NSWSC 985; 186 FLR 111
Noxequin Pty Ltd v DCT - [2007] NSWSC 87
House v R - [1936] HCA 40; (1936) 55 CLR 499
Rasch Nominees Pty Ltd v Bartholomaeus - [2013] SASCFC 105
Noxequin, Duncan v Commissioner of Taxation, Hall v Poolman (No 2) - [2007] NSWSC 1494
Georges v Locktronic Systems Pty Ltd - [2009] VSC 523
New South Wales Insurance Ministerial Corporation v Edkins - (1998) 45 NSWLR 8
Judgment date: 14 March 2014
Judgment by:
Barrett J
[128] The circumstances in which the controversy now before the court arose, the issues to be addressed and the relevant statutory provisions appear from the judgment of McColl JA which I have had the advantage of reading in draft.
[129] The Commissioner was not obliged to procure for the director the status of a third party in the proceedings brought by the liquidator against the Commissioner and thereby to ensure the director's opportunity to argue the central issue of the company's solvency. The Commissioner, having decided not to contest the liquidator's allegation that the company was insolvent at relevant times and the other aspects of the liquidator's claim, could instead have elected to suffer judgment at the suit of the liquidator and then sue the director in a separate proceeding to recover under the indemnity created by s 588FGA of the Corporations Act 2001 (Cth).
[130] Had the Commissioner taken that alternative course, any order for costs in the first proceeding would almost certainly have been against the Commissioner and in favour of the liquidator; and, in the subsequent action by the Commissioner against the director (in which the company's insolvency would not have been in issue), costs so awarded against the Commissioner would have been an element of the "loss or damage" covered by the statutory indemnity as referred to in s 588FGA(2): Commissioner of Taxation v Sims [2008] NSWCA 298 ; (2008) 72 NSWLR 716.
[131] In the events that happened, the Commissioner saw fit to join the director as a party to the s 588FF proceeding brought by the liquidator against the Commissioner, thereby taking the course envisaged (but not compelled) by s 588FGA(4). That proceeding nevertheless remained one in which the primary question was whether an order for the payment of money to the company should be made against the Commissioner at the suit of the liquidator.
[132] The answer to that question was agreed between the liquidator and the Commissioner who elected to succumb to a money judgment in favour of the company. That was seen by the judge as sufficient to warrant exercise of the costs discretion in the way in which he exercised it, even though other costs outcomes might also have been within the bounds of the proper exercise of the discretion.
[133] This court is dealing here with a discretionary decision to which the principles in House v R [1936] HCA 40 ; (1936) 55 CLR 499 at 505 apply. In some instances, there may be a range of orders falling within the scope of the discretion as to costs. An appeal court should in general not review a costs decision unless there has been "clear error of principle or manifest injustice": New South Wales Insurance Ministerial Corporation v Edkins (1998) 45 NSWLR 8 at 12 per Priestley JA (Spigelman CJ and Sheppard A-JA concurring).
[134] Of particular importance in the present case are several features of the hearing before the primary judge on 7 May 2012. Consent orders had been made on 2 April 2012. These included a judgment for $1,298,356 in favour of the company and against the Commissioner; a judgment for $842,587.69 in favour of the Commissioner and against the director; directions with a view to a hearing of the liquidator's "application for costs against the defendant" (that is the Commissioner); and an order for adjournment to 7 May 2012 "to argue costs generally and the plaintiffs [sic] application for costs against the defendant".
[135] When the matter was called on 7 May 2012, there were appearances for the liquidator and the Commissioner. There was no appearance for the director. Counsel for the liquidator began by saying:
It is a very neat point, your Honour. The question is simply whether or not your Honour would order indemnity costs in the matter involving an unfair preference where the Commissioner through interlocutory process sought to sue for indemnity. The judgment has been given and it is only a question of costs.
[136] Counsel for the Commissioner in due course said:
Now your Honour I make it clear that my client doesn't oppose party/party costs up to and including 14 December 2011. It does oppose indemnity costs and there are three reasons for that position.
[137] Counsel for the Commissioner went on to state and elaborate the three reasons. Having done so, he added the following observation concerning Noxequin Pty Ltd v DCT [2007] NSWSC 87:
Your Honour just one last point. Justice Barrett's decision in Noxequin Pty Ltd v DCT is authority for the proposition that the Commissioner should only be liable for costs up until the date that he withdraws his position as to the liquidator's case notwithstanding that in this case Mr Rowe wants to bat on.
[138] The response by counsel for the liquidator to that part of the Commissioner's submissions was to the effect that the Noxequin decision did not mean that, once the Commissioner has conceded the liquidator's claim, the liquidator's prospects of full recovery of costs are to be dependent on the resources of the director chosen by the Commissioner as the object of a claim for indemnity.
[139] It is clear that, in the particular circumstances, the matter in contest before the primary judge was whether costs ordered in favour of the liquidator and against the Commissioner should be on an indemnity basis or the ordinary basis after the particular date. Significantly, the director was not represented at the hearing and neither counsel for the liquidator nor counsel for the Commissioner presented the matter as involving anything beyond the question of the basis of assessment of costs to be borne by the Commissioner alone. The judge was clearly right when he said that the passage in the Noxequin judgment that he set out at [13] of his judgment was not intended "to lay down a rule of law".
[140] I observe, in conclusion, that, even though there was, in this case, one proceeding rather than two and the judgment against the director and in favour of the Commissioner had already been entered before the court made the costs order against the Commissioner and in favour of the liquidator, the costs the subject of that order form part of the Commissioner's "loss or damage" referred to in s 588FGA(2) and the statutory indemnity -- which in no way depends for its force upon any court order or exercise of discretion -- requires the director to pay, as a debt due to the Commonwealth and payable to the Commissioner, the whole of those costs.
[141] For the foregoing reasons, I am not persuaded that the primary judge's exercise of the discretion as to costs miscarried in any way warranting appellate intervention. Orders should be made as McColl JA proposes.